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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Sobha Limited (NSE:SOBHA) has paid a dividend to shareholders. It currently yields 1.6%. Let’s dig deeper into whether Sobha should have a place in your portfolio.
Check out our latest analysis for Sobha
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Does it pay an annual yield higher than 75% of dividend payers?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has dividend per share risen in the past couple of years?
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Is is able to pay the current rate of dividends from its earnings?
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Will it be able to continue to payout at the current rate in the future?
How well does Sobha fit our criteria?
The company currently pays out 29% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. However, going forward, analysts expect SOBHA’s payout to fall to 25% of its earnings, which leads to a dividend yield of 1.7%. However, EPS should increase to ₹27.84, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Compared to its peers, Sobha has a yield of 1.6%, which is high for Real Estate stocks but still below the market’s top dividend payers.
Next Steps:
Keeping in mind the dividend characteristics above, Sobha is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three essential aspects you should further research:
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Future Outlook: What are well-informed industry analysts predicting for SOBHA’s future growth? Take a look at our free research report of analyst consensus for SOBHA’s outlook.
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Valuation: What is SOBHA worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SOBHA is currently mispriced by the market.
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Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.